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May 27, 2026 — 5:00am
When people face a threat – real or perceived – the common responses are “fight”, “flight” and “freeze”.
When it comes to the latest property tax changes, all three have been on display: a flurry of people kicking up a fuss and warning the housing market will collapse, investors pulling back from purchasing homes and some people pausing any decisions until they feel better informed.
Real estate agents and property investors – the people who have the most to lose from a slowdown in house prices – are, unsurprisingly, out in force against the changes. But there are also some households understandably worried about what a downturn might mean.
The share of homes sold at auctions across Australia last weekend was about 53 per cent, down about 12 per cent compared to the same time last year. That’s a noticeable drop, tipping the housing market towards what’s called a “buyer’s market” where the clearance rate is below 60 per cent and buyers hold a bit more bargaining power.
That’s not necessarily a bad thing, though. The Australian housing market has, for a long time, been a “seller’s market” with prices climbing rapidly.
Many of the people who have benefited from house prices climbing are now alarmed at the prospect of house prices falling. But imagine what it must have felt like to be on the other side as an aspiring home owner, watching house prices grow at more than double the rate of incomes for several decades.
But wait, some researchers are saying house prices across Sydney and Melbourne could fall as much as 9 per cent from the beginning to the end of this year. That has to be bad news, right?
Well, first, that fall is mostly attributable to temporary factors: tightening of interest rates which we know reduces people’s ability to borrow, incoming cold and rainy weather which dampens enthusiasm to turn up to auctions, and the Iran war putting a dampener on people’s appetite to invest. These factors are likely to fade within years (or, when it comes to the war, even within months, according to Treasury and Reserve Bank assumptions).
Second, humans are prone to a bit of panic and herd behaviour. It’s why you often see sudden rallies or collapses in the sharemarket (which then resolve once the issue goes away or when people calm down). That’s likely part of the reason why the immediate reaction to the tax changes has seemed significant.
Third, while the media tends to choose the headlines and emphasise the statistics that are the most shocking, the reality is often quite a bit less exciting.
Most economists, for example, aren’t expecting house prices to fall, but simply to grow more slowly than they otherwise would have.
Treasury’s estimates in the most recent federal budget suggest house price growth will slow by 2 per cent over two years compared to a situation in which tax settings stayed the same.
And remember: the point of these tax changes is to temper Australia’s house price growth so that we don’t end up with a lottery system where only high-income earners, or those with a generous inheritance, have a shot at affording a home.
Would a downturn in the housing market be fun? For those who already have a property (and who want to see the value of their properties grow), no. And if the worries become so huge and widespread that people are paralysed with fear, that could be a drag on the economy because they might pull back on investing and spending, which we know slows down the economy.
But would it be the end of the world? Also, no. We’ve been through downturns in the housing market before. Some people inevitably lose out, but the majority will be OK (and some will benefit from increased housing affordability). And given the stubborn imbalance between demand and supply which we’ve struggled to fix for decades, Australia’s house prices will continue to climb over the longer term, especially once interest rates come down.
If we saw a substantial spike in Australians listing their homes for sale (especially because they became unemployed, fell too far behind on their interest repayments and were forced to sell their home) that would be a worrying signal.
Banks would potentially be left unable to recoup the value of those loans, and they might tighten lending standards which would further dampen demand and lead to lower house prices. And developers might lose funding for their projects, leading to unfinished projects, the business going under, and leaving contractors unpaid.
But none of this is likely to happen at any significant scale – largely because the effect of the new taxes on property prices is likely to be relatively subdued.
In the Reserve Bank’s latest financial stability review published in March, for example, the bank noted that only about 1 per cent of variable-rate owner-occupier borrowers were estimated to be raking in less than they were spending at the end of 2025, and that households and businesses were “generally well-placed to weather higher interest payments and cost pressures.” By comparison, the share of borrowers facing a cash flow shortfall peaked at more than 4 per cent back in 2023.
The war in Iran, higher interest rates, and inflation are undoubtedly causing pain for many Australians, with the unemployment rate last month ticking up to 4.5 per cent. But the latest tax changes will not be the straw that breaks the camel’s back.
Tax changes will always come at a cost – and upset those who stand to lose from them – but consequences such as a slowdown in house price growth are unlikely to be significant, and more likely to be an inconvenience rather than a life-altering financial problem for most of those with something to lose.
Meanwhile, all of us will benefit from the social cohesion and renewed incentive to work hard when more Australians feel like they are not locked out of success or home ownership.
People naturally scan for – and fixate on – anything they think might be a threat. But if a full-blown collapse of the housing market and the economy are a tiger in the trees, the latest property tax changes are more like a speed bump. No need to fight, flee or freeze: just ride out the inconvenience and know it’s ultimately for our benefit.
Millie Muroi is the economics writer at The Sydney Morning Herald and The Age.
